Jobs and Unemployment

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses payroll jobs and the unemployment rate.

The net payroll job addition was not particularly inspiring, with only 114,000 added in September. However, the unemployment rate dipped meaningfully by several decimal points to 7.8 percent from 8.1 percent in the prior month. This drop occurred even as more people entered the labor force.

What happened? For jobs, more focus is paid to payroll employment data. To be healthy, the payroll addition should be at least 200,000 each month. But the unemployment rate is not derived from payroll data. Rather the job figure from the household survey is used and according to this survey a whopping 873,000 jobs were created last month. Independent contractors, including most REALTORS®, are not on anyone’s payroll, yet they would say they have a job that is captured in the household survey data. Generally the job trends in payroll and household survey closely move together. But not in the latest month.

Though there were slightly more people in the labor force and looking for job, there is still a long way to climb back to the pre-recession level of labor force participation rate. The current 63.6 percent participation rate is low and if it had been what it used to be at 66 percent, then the unemployment rate would be higher than 10 percent. The recent years’ fall in the participation rate is attributed to more people going back to school, giving up looking for work, or who are on disability benefits and not counted as unemployed.

The average hourly earnings rose by 5 cents to $19.81. That is an increase of 1.4 percent from one year ago. But consumer price inflation has eaten up all the wage gains as consumer prices have risen by 1.7 percent.

The outlook, assuming no fiscal cliff, is that payroll job gains will hit 1.5 million for all of 2012 and will likely rise to 2.2 million in 2013. These additions are an added source of home buying and commercial real estate occupancy.

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.